Purchasing a commercial property is an exciting milestone, whether it is your first investment or you are broadening your portfolio. Amongst the paperwork and legal arrangements, you will also need to determine whether VAT will be added to the price. Why? Because the stamp duty land tax charge (SDLT) is calculated on the VAT-inclusive rate. If you’re unsure where to start, not to worry; our knowledgeable team has put together a guide on everything you need to know.
How Does OTT Work For Commercial Properties?
Although most commercial properties are naturally exempt from VAT, there are some instances whereby the owner has opted to apply VAT and inform HMRC of this decision; this is known as Option To Tax (OTT).
For this reason, it is vital to understand the correct VAT position before pursuing your investment. To help you navigate the world of OTT, in this article, we will run through the following:
What Is Option To Tax (OTT)?
In short, OTT permits a commercial building owner to charge VAT on the rental, sub-letting or sale of the property, allowing them to make an extra income. Once OTT is applied to a property, it will last for 20 years, and after this period, it will return to being VAT exempt.
What Are The Latest OTT Guidelines?
The most recent guidelines state that if the OTT decision was made less than six years ago, HMRC will no longer need to confirm whether VAT should be added to the price. Any decisions recorded over six years will still need to be actioned by HMRC, but they will not be treated with urgency.
In the instance that the building owner has gone into receivership (when a receiver takes control of the property on behalf of a creditor), HMRC will respond to any requests revolving around OTT from the insolvency practitioners appointed to administer the property in question.
Once the OTT decision has been made and submitted to HMRC by email, it will automatically be acknowledged, but a confirmation will not be sent. Instead, the building owner should record and store the OTT decision in case HMRC asks for proof or a prospective buyer wants to see the VAT status of the property.
Contact Our Team For Further Advice
Whether you are a commercial property owner or an investor looking to purchase a building, our team are always more than happy to advise you on OTT and the best route for you. Please do not hesitate to contact us to book your appointment and begin future-proofing your financial status.